Google’s earnings report in April spurred the largest surge in Alphabet shares since 2015, bringing the company’s market capitalization beyond $2 trillion.
However, at an all-hands meeting last week with CEO Sundar Pichai and CFO Ruth Porat, staff were more concerned with why that performance isn’t translating into higher compensation and how long the company’s cost-cutting measures will be in place.
“We’ve noticed a significant decline in morale, increased distrust, and a disconnect between leadership and the workforce,” a statement made on an internal forum before to the meeting stated. “How does leadership plan to address these concerns and regain the trust, morale and cohesion that have been foundational to our company’s success?”
Google is employing artificial intelligence to summarize employee feedback and questions for the forum.
Alphabet’s top leadership has been on the defensive for several years, as vocal employees have complained about post-pandemic return-to-work mandates, the company’s cloud contracts with the military, fewer perks, and an extended period of layoffs — totaling more than 12,000 last year — as well as other cost cuts that began when the economy turned in 2022.
Employees have also complained about a lack of trust and pressure to work on shorter deadlines with less resources and fewer prospects for internal promotion.
Despite Alphabet’s better-than-expected first-quarter earnings report, which included the announcement of its first dividend and a $70 billion repurchase, internal turmoil persists.
“Despite the company’s stellar performance and record earnings, many Googlers have not received meaningful compensation increases,” a top-rated employee question stated. “When will employee compensation fairly reflect the company’s success and is there a conscious decision to keep wages lower due to a cooling employment market?”
Another highly scored comment focused on the company’s priorities, notably its significant investments in artificial intelligence.
“To many people, there’s a clear disconnect between spending billions on stock buybacks and dividends and re-investing in AI and retraining critical Googlers,” the article stated.
“Our priority is to invest in growth,” Porat explained as she took the microphone to answer questions. “Revenue should be growing faster than expenses.”
She also took the unusual step of admitting that leadership made mistakes in previous investment decisions.
“The problem is that a couple of years ago—two years ago, to be precise—we actually got that upside down and expenses started growing faster than revenues,” said Porat, who stated about a year ago that she would be stepping down as CFO but has yet to leave the office. “The problem with that is it’s not sustainable.”
Google execs have recently hammered this point.
In an internal meeting last month, Search CEO Prabhakar Raghavan highlighted Google’s key business issues, saying “things are not like they were 15 to 20 years ago,” and challenged employees to work faster. He told his squad, “Life isn’t going to be perfect forever.”
Google’s cloud business was one of the units that instructed staff to move faster despite having fewer resources due to expense reduction.
Google’s Use of Cash
Employees had a lot of questions about the company’s repurchase before last week’s meeting, Porat explained.
Alphabet had more than $100 billion in cash on its balance sheet as of last quarter, but Porat stated that “you can’t just drain it” or the business will be in the same position as in 2022.
In contrast, she stated that distributing cash to shareholders is not considered an expense on the balance sheet, and that the board has a fiduciary duty to explore such actions. Porat stated that buybacks and dividends do not substitute investments in artificial intelligence.
Pichai interjected after Porat finished her remark.
“I think you almost set the record for the longest TGIF answer,” he replied. Google all-hands meetings were initially known as TGIFs because they took place on Fridays, but they can now be held on other days of the week.
Pichai then suggested that leadership should give a “Finance 101” Ted Talk to staff.
In response to employee concerns about morale, Pichai stated that “leadership has a lot of responsibility here,” adding that “it’s an iterative process.”
Pichai claimed the firm overstaffed during the Covid epidemic.
“We hired a lot of employees and from there, we have had course correction,” Pichai stated.
Alphabet’s full-time workforce grew to over 190,000 at the end of 2022, up about 22% from a year earlier and 40% more than at the end of 2020.
Pichai, who succeeded Google co-founder Larry Page as CEO of Alphabet in 2019, has recently faced criticism for his messaging to employees as well as his large salary package, which will rise to $226 million, including stock awards, in 2022.
The 2022 package contained $218 million in equity through a triennial stock grant. According to Alphabet’s proxy statement, his total salary for 2023 was $8.8 million, up from almost $8 million the previous year (without the stock grant). Aside from Pichai’s $2 million salary per year, the majority of his supplementary income was for personal protection.
Employees have grumbled about Pichai’s salary during a time when the company is downsizing.
“Given the recent headcount and positive earnings, what is the company’s headcount strategy?” The answer to one question was. Another person inquired, “Given the strong results, are we done with cost-cutting?”
Pichai stated that the company is “going through a long period of transition as a company,” which includes decreasing costs and “driving efficiencies.” Regarding the latter, he stated, “We want to do this forever.”
“To be clear, we’re growing our expenses as a company this year, but we’re moderating our pace of growth” Pichai stated. “We see opportunities where we can re-allocate people and get things done.”
A Google spokeswoman told CNBC that the business is investing in its top priorities and would continue to hire in those areas.
The representative also stated that most employees will receive a wage boost this year, which will include a higher salary, equity awards, and bonuses. Executives at the all-hands meeting reported that employees who earned raises last year received lesser raises than typical.
Another comment made prior of the meeting referred to “growing concerns about jobs moving from the United States to lower-cost locations.” Last week, CNBC reported that Google is laying off at least 200 people from its “Core” division, which comprises important teams and engineering skills.
Despite the positive earnings announcement, executives were questioned, “When can we expect an end to the uncertainty and disruption that layoffs create?”
According to Pichai, the majority of the layoffs will be completed in the first half of 2024.
“Assuming current conditions, the second half of the year will be much smaller in scale,” Pichai added, referring to employment losses. He stated that it will continue to be “very, very disciplined about managing headcount growth throughout the year.”
That implies the corporation is still facing difficult decisions about investing in new ventures.
“There’s a lot of demand to do new things and, in the past, we would have just done it reflexively by growing headcount,” Pichai stated. “We can’t do it now through the transition we are in.”
